As many as 14 US-listed mainland Chinese companies, including Alibaba and Baidu, will be added to MSCI’s Emerging Market Index. MSCI said Thursday that the changes would be implemented at the market close on November 30, making it the first indexer to add these stocks. The move is likely to bring billions of dollars into the stocks. MSCI had previously declined to include the US-listed foreign companies in its regional indexes.
Alibaba largest US-listed name added to the index
With a market value of $200 billion, Alibaba is the largest of them. MSCI has added mostly technology names such as Baidu, JD.com, 58.com, Ctrip.com, New Oriental Education, Qihoo 360 Technology, TAL Education, Vipshop, YY, NetEase, Qunar, SouFun Holdings, and Youku Tudou. Earlier this month, Alibaba reached a deal to acquire Youku Tudou for $3.67 billion.
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The inclusion of these names will significantly increase the presence of tech-oriented companies in the MSCI Emerging Markets Index. Analysts estimate that about $70 billion would flow into these stocks in six months following MSCI’s rebalancing act. It will also increase China weight in the index from the current 23% to 26%. E-commerce and IT services companies reflect China’s domestic consumption, which has been rising even though the economic growth continues to slow down. Earlier this week, Alibaba sold $14.3 billion worth of merchandise on Singles’ Day, up 60% from last year.
Funds will have to reallocate their assets
Initially, the US-listed Chinese companies will be added at half the free float-adjusted market cap. The remaining market cap will be added in May 2016 during the semiannual index review. Funds tracking the MSCI indexes will have to reallocate their assets to reflect the change. MSCI’s decision has also fueled speculations that it may eventually add mainland China-listed A-stocks in the index.
MSCI also added 18 stocks, some of them listed overseas, to its China Index. MSCI’s regular quarterly adjustments also saw the inclusion of foreign-listed shares from Israel, the Netherlands, and Hong Kong to other indexes.